Negotiating Credit Card Processing Contracts
Evaluating and negotiating credit card processing contracts is daunting for any business executive. The rates are confusing, the surcharges and additional fees appear endless and the terms are restrictive.
Since credit card processing is a significant expense, it’s critical to understand the typical tricks processors play when negotiating contracts.
Determine the Effective Rate
Credit card processors often offer teaser rates like 1.6% for swiped transactions. But there are transaction surcharges and monthly fees on top of this rate.
Beyond the teaser, businesses are expected to pay monthly surcharges including:
- Annual fees
- Gateway fees
- Monthly statement fees
- Client portal fees
- Supplies fees
- PCI fees
- PCI non-compliance fees
- Equipment leases
- Chargeback and retrieval fees
There are charges for starting and ending the relationship with a new credit card processor. Such costs include the application fees, equipment deposits, early termination fees, equipment/software setup fees, training fees among others.
The effective rate uses the bottom line cost divided into the sales volume. For example, if you run $100,000 in sales and after all rates and fees you are charged $3500, the effective rate is 3.5%
Understand the Cancellation Terms
Credit card processing contracts have cancellation terms in case of early termination. This part can be challenging to understand because it is often hidden in the contract’s fine print or in a separate addendum that the sale rep may withhold entirely.
It should not deter you from going through the terms as some credit card processing companies charge incredibly high rates for early termination. Consider hiring a specialist versed in this field to help you understand the contract. For example, some termination fees are a fixed dollar amount such as $300 and other early termination fees are complicated liquidated damages calculations that could cost tens or hundreds of thousands of dollars.
Vet the Giveaways
Many merchants use these free offers to woo customers into signing up with them. The freebies may be in the form of free equipment among other features. If the processor is offering such lucrative terms, check the conditions attached.
The contract period may be longer, the rates may be higher, or the customer may be required to pay for the maintenance fees. Also, find out if you need to return the equipment if you terminate the contract or if wear and tear penalties apply.
With these few points, you have the foundation to negotiate a credit card processing contract. Keep in mind; the processor will try to get you to pay for a pricier plan regardless of your business needs. Take your time, compare and consider the contracts carefully before signing.
Don’t Take On The Credit Card Processors By Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service or technical difficulties. See if you qualify for IdealCost.com’s monthly savings program by uploading your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.